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SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Support.com, Inc.
Form: 10-K
Date Filed: 2015-03-06
Corporate Issuer CIK: 1104855
Symbol: SPRT
Fiscal Year End: 12/31
© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.

Table of contents

  • Page 1
    ...& EXCHANGE COMMISSION EDGAR FILING Support.com, Inc. Form: 10-K Date Filed: 2015-03-06 Corporate Issuer CIK: 1104855 Symbol: SPRT Fiscal Year End: 12/31 © Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of...

  • Page 2
    ... ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2014 OR ☐ TRANSITION REPORT ... Drive, 2nd Floor, Redwood City, CA (Address of Registrant's Principal Executive Offices) Registrant's telephone number including area code: ...

  • Page 3
    ...ENDED DECEMBER 31, 2014 TABLE OF CONTENTS...Reporting Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Other Information Directors, Executive Officers and Corporate Governance Executive Compensation... This Annual Report on ...data gathering process and ...

  • Page 4
    ... primarily through partners, who resell the services to their customers or include them in their service offerings. Nexus is marketed through a variety of demand generation programs. We market our end-user software products directly, principally online, and through partners. Our sales and marketing...

  • Page 5
    ... wireless network and supported devices. We deliver our services using specialists who work from their homes rather than in brick and mortar facilities. These technology specialists are recruited, tested, hired and trained on a virtual basis using proprietary methods and remote technology. We also...

  • Page 6
    ... for malware protection and removal (SUPERAntiSpyware®), PC, smartphone and tablet maintenance and optimization (Cosmos cleaning and repair (ARO®). Sales and Marketing Technology Support Services. We sell our services principally through partners. Our partners include leading communication...

  • Page 7
    .... Our partners also receive reports and analytic information from the warehouse for their programs on a regular basis via secure data feeds, or they can access reports via an online reporting portal. Nexus open application interfaces enable integration with CRM, ticketing systems, and other contact...

  • Page 8
    ... the SEC at the website address located at www.sec.gov. Our telephone number is 650-556-9440 and our website address is www.support.com. The information contained on our website does not form any part of this Annual Report on Form 10-K. However, we make available, free of charge through our website...

  • Page 9
    ... future performance and cause those forward-looking ...free versions of our end-user software products; Our ability to expand and diversify our customer base; Our ability to execute effectively in the small business market; Our ability to offer subscriptions...employees; Our ability to hire, train...

  • Page 10
    ...report, and we undertake no obligation to publicly revise or update any forward-looking statement for any reason. Because forward-looking statements involve risks and uncertainties, there are important factors that may cause...largest partner program ...employees working from diverse and remote locations...

  • Page 11
    Table of Contents Reduce our dependence on a limited number of partners for a substantial majority of our revenue; Successfully license our Nexus SaaS offering; Attract and retain qualified management and employees in competitive markets for talent; Hire, train, manage and retain our home-based...

  • Page 12
    ...often initiated securities class action litigation relating ... a small number of partners have historically...programs or loss of certain partners or programs could decrease our revenue substantially. For the three months ended December 31, 2014, Comcast (67%) and thecombined Office Depot and OfficeMax...

  • Page 13
    ... the reduction or discontinuance of a program with even one of these partners could cause us to miss revenue or other financial targets. The process of establishing a relationship with a partner can be complex and time consuming, and we must pass multiple levels of review in order to be selected. If...

  • Page 14
    ...the sales of... small ...programs...partners and the Nexus SaaS offering we license are hosted at a third-party facility located...address, among other things, cyber-attacks and potential harm resulting from incidents such as data privacy breaches; but depending on the type of damages, the amount, and the cause...

  • Page 15
    ..., scale our business costeffectively, and develop complimentary relationships with other companies providing services or products to our partners. Competition...execute our growth plans; Declines in revenue and increases in losses; Failure to realize the potential financial or strategic benefits ...

  • Page 16
    ...partners and their customers' users, including personally identifiable information and payment card information, and our employees... card processing. Certain of our customers use payment cards to pay for ...may harm our business and cause us to lose customers....derivative works based on such open source...

  • Page 17
    ... and updates from ... governing employee selection and training and ...small business products and services. Our ability to limit our liability for the acts or omissions of our employees in our contract terms with partners and consumers in relation to such programs...preventive or remedial actions. As a...

  • Page 18
    ...technologies could enable third parties to benefit from our technologies without paying us for them, which would harm...class action claims and similar legal actions. As our employee count grows and consists mostly of hourly ("non-exempt") employees working from home, we can also be subject to employee...

  • Page 19
    ... partners ...corporate headquarters is located in Redwood City, California, where we sublease an office...office in Bangalore, India with 6,838 square feet for which the lease will expire on August 31, 2021. ITEM 3. LEGAL PROCEEDINGS. Legal Contingencies On April 3, 2014, LT Tech LLC filed a complaint...

  • Page 20
    ... class-action members; the deadline to submit a claim form concluded on February 28, 2013. In addition, the Company offered a limited free subscription...sets forth the highest and lowest sale price of our common stock for the quarters indicated: Low Fiscal Year 2014: First Quarter Second Quarter Third...

  • Page 21
    ...issuance under our equity compensation plans can be found under Item 12 of Part III of this Report. Stock Price Performance... "Nasdaq Composite Index") and Nasdaq Computer and Data Processing Services Index from December 31, 2009 through December 31, 2014. The graph assumes that $100 was invested on ...

  • Page 22
    ...legacy Enterprise software business to Consona Corporation and focused our efforts purely on the consumer and small business markets for technology services, ... Impairment or Disposal of Long-Lived Assets. The Company currently reports its operations as a single operating segment. The information set ...

  • Page 23
    ... 31, 2012 (in thousands 56,350 54,758 88,259 1,456 (166,373) 74,163 $ $ $ $ $ $ 2014 Consolidated Balance Sheet Data: Cash, cash equivalents and investments Working capital Total assets Long-term obligations Accumulated deficit Total stockholders' equity 2013 2011 2010 $ $ $ $ $ $ 73,793 79...

  • Page 24
    ... technology specialists for our home networking support bundle program and Xfinity home program with Comcast. Cost of software and other for the year ended December 31, 2014 decreased by 28% year-over-year due to lower sales of end-user software products driven by our decision to discontinue...

  • Page 25
    ...Level 2 inputs, are primarily comprised of commercial paper, corporate bonds, corporate notes and U.S. government agencies securities. We review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we...

  • Page 26
    ... that we have only one reporting segment, we test goodwill for impairment at the entity level. We test goodwill using the two-step process required by ASC 350. In the first step, we compare the carrying value of the reporting unit to the fair value based on quoted market prices of our common...

  • Page 27
    ... Sales ...2014, direct services revenue was $6.4 million compared to $4.2 millionfor 2013. Services revenue for the year ended December 31, 2013 increased by $17.2 million from 2012. The increase was due primarily to continued growth in our partner programs, primarily the programs for Comcast...

  • Page 28
    ..., 2014 compared to 2013 was mainly due to increases in wages and employee benefits of $13.0 million and in direct technology costs of $1.3 million in connection with the hiring of additional technology specialists primarily for our home networking support bundle program and Xfinity home program with...

  • Page 29
    ... 31, 2013 compared to 2012 resulted from a $3.4 million decrease in wages and employee related expenses, a $1.0 million decrease in contracted labor and a $270,000 decrease in telecommunication expenses due to reduction in contact sales agent workforce completed at the end of second quarter of 2012...

  • Page 30
    ...accrual of $57,000 associated with a class-action lawsuit that was concluded in August 2013. Income tax provision % Change 2013 to 2014 740 (4)% $ % Change 2012 to...as stock-based compensation expense, amortization of intangible assets and other, amortization of premiums and discounts on investments, ...

  • Page 31
    ...compensation expense of $4.5 million, amortization of intangible assets and other of $1.5 million, amortization of premiums and discounts ...employee stock purchase plans. Working Capital and Capital Expenditure Requirements At December 31, 2014, we had stockholders' equity of $95.7 million and working...

  • Page 32
    ... Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15,Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions or...

  • Page 33
    ...foreign currencies (primarily Canadian dollars and Indian rupees) into U.S. dollars for a small portion of our operations, currency fluctuations have had an immaterial impact on our ... has generally been immaterial. As of December 31, 2014, we did not engage in foreign currency hedging activities. 32

  • Page 34
    ... of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. SUPPORT.COM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firms Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive...

  • Page 35
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Support.com, Inc. Redwood City, California We have audited the accompanying consolidated balance sheets of Support.com, Inc. as of December 31, 2014 and the related consolidated statements ...

  • Page 36
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING...assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and ... Ernst & Young LLP San Francisco, California March 7, 2014 35

  • Page 37
    ... STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued compensation Other accrued liabilities Short-term deferred revenue Total ... authorized; 55,457,001 issued and 54,264,483 outstanding at December 31, 2014; 54,474,594 issued and 53,281,996 outstanding at December 31, 2013 Additional...

  • Page 38
    ...321 33,031 10,752 369 11,121 772 10,349 34 10,383 $ 2014 Revenue: Services Software and other Total revenue Costs of revenue: Cost of services Cost...of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Amortization of intangible assets ...

  • Page 39
    ... of Contents SUPPORT.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year Ended December 31, 2013 (3,483) $ 10,383 $ 2014 Net income (loss) Other comprehensive income (loss): Change in foreign currency translation adjustment Change in net unrealized gain (loss) on...

  • Page 40
    ... and releases of RSUs Issuance of common stock under employee stock purchase plan Repurchase of common stock Warrant-related charges Utilized excess tax benefit Balances at December 31, 2013 Net loss Other comprehensive loss Stock-based compensation expense Issuance of common stock upon exercise of...

  • Page 41
    ... and equipment Acquisition of business, net of cash acquired Purchases of investments Sales of investments Maturities of investments Net cash (used in) provided by investing activities Financing activities: Utilized excess tax benefits Proceeds from issuance of common stock Repurchase of common...

  • Page 42
    ...programs are designed for both the consumer and small... business markets, and include computer and mobile device set-up, security and support, virus and malware removal...boosting agent ...to Consona Corporation. Therefore,...ended December 31, 2014, 2013, and... reported ...stock-based compensation expense and...

  • Page 43
    ... a specific review of all...2014, Comcast (80%) accounted for 10% or more of our total accounts receivable. As of December 31, 2013, Comcast (78%) and the combined Office Depot and OfficeMax...-sale, and are reported ... fair value, as determined based on quoted market prices or liquidation values. Declines ...

  • Page 44
    ...forth the unrealized losses for the Company's available-for-sale investments as of December 31, 2014 and 2013 (in thousands): In Loss Position Less...46,033 $ (5) (48) (53) As of December 31, 2013 Description Certificate of deposits Corporate notes and bonds Total $ $ (2) (10) (12) $ $ - (12) (12...

  • Page 45
    ...reporting segment, we test goodwill for impairment at the entity level. We test goodwill using the two-step process required by ASC 350. In the first step, we compare the carrying value of the reporting unit to the fair value based on quoted... programs are designed for both the consumer and small and...

  • Page 46
    ... through our website at www.support.com. We transact with customers via reseller programs, referral programs and direct transactions. In reseller programs, the partner generally executes the financial transactions with the customer and pays a fee to us which we recognize as revenue when the service...

  • Page 47
    ...the recognition of revenue associated with sales of these products. For certain of our end-user software products (principally SUPERAntiSpyware), we sell licenses for a fixed subscription period. We provide regular, significant updates over the subscription period and therefore recognize revenue for...

  • Page 48
    ...using theMonteCarlo simulation model. Stock-based compensation expense for RSUs is estimated at the date of grant based on the number of shares granted and the quoted price of the Company's common stock on the grant date. Stock options vest on a graded schedule; however we recognize the expense over...

  • Page 49
    ...to pay ...2014 Stock-based compensation expense related to grants of: Stock options ESPP RSU Stock-based compensation expense recognized in: Cost of service Cost of software and others Research and development Sales...2014 and 2013, respectively. In accordance with ASC 718, we present excess tax benefits...

  • Page 50
    ... period on sales, during which refunds may be granted to consumers under certain circumstances, including our inability to resolve certain support issues. For our partnerships, the refund period varies by partner, but is generally between 5-14 days. For referral programs and direct transactions...

  • Page 51
    ... reviews financial information presented on a consolidated basis. Revenue from customers located outside the United States was less than 1% of total for the years ended December 31, 2014, 2013, and 2012. For the year ended December 31, 2014, Comcast (64%) and the combined Office Depot and OfficeMax...

  • Page 52
    ...in the event that Comcast meets specified sales milestones under the Customer...2014, 2013 and 2012. In December 2006, we acquired the use of a toll-free telephone number for cash consideration of $250,000. This asset has an indefinite useful life. The intangible asset is tested for impairment annually...

  • Page 53
    ... lease. On June 7, 2012, we entered into a sublease and master landlord consent agreement for our headquarters office facility located in Redwood City, California. This lease covers approximately 21,620 square feet and will expire on February 18, 2017. The lease provides for escalating payments...

  • Page 54
    ..., 2014 and 2013. Note 6. Restructuring Obligations and Other Charges In the fourth quarter of 2013, the Company implemented a reduction in our work-from-home agent and corporate workforce to reduceour ongoing cost structure. The Company reduced its agent workforce by 210 employees, and its corporate...

  • Page 55
    ...$ $ (1) Severance costs include those expenses related to severance pay and related employee benefit obligations. Note 7. Other Accrued Liabilities Other accrued liabilities consist of the following (in thousands): As of December 31, 2014 2013 2,502 $ 352 - 175 3,029 $ Accrued expenses Customer...

  • Page 56
    ... ended March 31, 2014. On December 13, 2012, the Compensation Committee of the Board of Directors extended the term of 700,000 stock options granted to the Company's Chief Executive Officer and President. The stock options were granted on April 6, 2006, and were originally scheduled to expire on...

  • Page 57
    ...upon the first anniversary of the grant date. On August 5, 2013, pursuant to approval by the Company's Compensation Committee, the Company issued 725,000 RSUs to its corporate employees. These RSUs vest annually in three equal tranches over three years. On May 23, 2013, the Board of Directors of the...

  • Page 58
    ...2014, the maximum number of shares remaining that can be repurchased under this program...Executive Officer, pursuant to which Mr. Pickus sold directly to the Company on that day 1,000,000 shares of its common stock acquired... in regular trading hours on the day of the sale as reported by Nasdaq less ...

  • Page 59
    ... on management's review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses...December 31, 2014 was $1.5 million. These earnings have been permanently reinvested and the Company does not plan to initiate any action that would ...

  • Page 60
    ... of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and...related to unrecognized tax benefit as of December 31, 2013 and 2012, respectively. As of December 31, 2014, the amount of recognized tax benefit where it is reasonably...

  • Page 61
    ...audits in the past and have paid assessments arising from these audits. Our India entity was issued notices of income tax assessment pertaining to the 2004-2009 fiscal...income in our Indian entity. During the fourth quarter of 2014, the Company re-evaluated the probability of its tax position and recorded...

  • Page 62
    ...per share data) Mar. 31, 2014 Statements of Operations Data: Revenue: Services Software and other Total revenue Cost of revenue: Cost of services Cost of software and other Total cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative...

  • Page 63
    ...processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer...in evaluating the cost-benefit relationship of possible ...

  • Page 64
    ... team, engaged outside consultants and adopted a project work plan to document and assess the adequacy of our internal control over financial reporting, address any control deficiencies that were identified, and to validate through testing that the controls are functioning as documented. Based...

  • Page 65
    ...Reporting Board of Directors and Stockholders Support.com, Inc. Redwood City, California We have audited Support.com, Inc.'s internal control over financial reporting as of December 31, 2014... over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating ...

  • Page 66
    .... A copy of the Code of Ethics and Business Conduct for Employees, Officers and Directors will be provided without charge to any person who requests it by writing to Support.com, Inc., Investor Relations, 900 Chesapeake Drive, 2nd Floor, Redwood City, CA 94063, or telephoning 1-415-445-3235. We will...

  • Page 67
    Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans Equity Compensation Plan Information As of December 31, 2014 Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) 2,766,037 750,000 3,516,037 Weighted-average exercise ...

  • Page 68
    ... 1, 2013 (incorporated by reference to Exhibit 10.19 of Support.com's annual report on Form 10-K filed with the SEC on March 7, 2014) (1) Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of October 1, 2013 (incorporated by...

  • Page 69
    ... 31, 2013 (incorporated by reference to Exhibit 10.21 of Support.com's annual report on Form 10-K filed with the SEC on March 7, 2014) Statement of Work Number 2 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 31, 2013 (incorporated by...

  • Page 70
    ... has duly caused this report to be ...report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated: Signature /s/ ELIZABETH CHOLAWSKY Elizabeth Cholawsky Title President and Chief Executive Officer (Principal Executive Officer) Executive...

  • Page 71
    ... 1, 2013 (incorporated by reference to Exhibit 10.19 of Support.com's annual report on Form 10-K filed with the SEC on March 7, 2014) (1) Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of October 1, 2013 (incorporated by...

  • Page 72
    ... 31, 2013 (incorporated by reference to Exhibit 10.21 of Support.com's annual report on Form 10-K filed with the SEC on March 7, 2014) Statement of Work Number 2 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 31, 2013 (incorporated by...

  • Page 73
    ...") began serving as Executive Chairman and Interim CEO until a successor to the Company's former CEO, Josh Pickus, was found and joined the Company. As previously disclosed in the Company's current report on Form 8-K filed with the SEC on March 14, 2014, the Compensation Committee (the "Committee...

  • Page 74
    Exhibit 21.1 Subsidiaries of Support.com, Inc. State or Jurisdiction in which Incorporated or Organized Name of Subsidiary Foreign Subsidiaries SDC Services Canada Inc. Support.com India Pvt Ltd Canada India

  • Page 75
    ... Employee Stock Purchase Plan and the Support.com, Inc. 2014 Inducement Award Plan of our reports dated March 6, 2015, and relating to the consolidated financial statements and the effectiveness of Support.com, Inc.'s internal control over financial reporting appearing in the Company's Annual Report...

  • Page 76
    ....com, Inc. 2011 Employee Stock Purchase Plan and the Support.com, Inc. 2014 Inducement Award Plan of our report dated March 7, 2014, with respect to the... 2013, included in this Annual Report (Form 10-K) for the year ended December 31, 2014. /s/ ERNST & YOUNG LLP San Francisco, California March 6,...

  • Page 77
    EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION I, Elizabeth Cholawsky, certify that: 1. I have reviewed this Annual Report on Form 10-K of Support.com, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material ...

  • Page 78
    EXHIBIT 31.2 CHIEF FINANCIAL OFFICER SECTION 302 CERTIFICATION I, Roop K. Lakkaraju, certify that: 1. I have reviewed this Annual Report on Form 10-K of Support.com, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact ...

  • Page 79
    ... Chief Executive Officer of Support.com, Inc. (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge, (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2014 (the "Report"), fully...

  • Page 80
    ... Chief Financial Officer of Support.com, Inc. (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge, (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2014 (the "Report"), fully...